WASHINGTON – U.S. service sector firms grew in November at the weakest pace since June, evidence that cautious spending by consumers and businesses may be slowing growth.
The Institute for Supply Management said Wednesday its service-sector index fell to 53.9 in November, down from 55.4 in October. Any reading above 50 indicates expansion. The index hit an eight-year high of 58.6 in August.
A measure of sales fell sharply last month to 55.5 from 59.7. While that is still above 50, the decline suggests consumers were more reluctant to spend than they were earlier this year. The sales figure reached 62.2 in August.
And a gauge of hiring fell to the lowest level since May. That’s a sign job gains may have slowed in November. The government will report last month’s hiring figures on Friday.
Economists weren’t overly concerned by the declines. They noted that the level of the index still points to steady growth. The government’s report on gross domestic product, the broadest measure of goods and services, will be released Thursday.
“The fall … is a bit disappointing, but the survey is still consistent with decent GDP and jobs growth in the fourth quarter,” said Paul Dales, an economist at Capital Economics.
Eleven of the 17 industries tracked by the survey expanded last month, including transportation and warehousing, retail, and finance. Six contracted, including mining, restaurants and hotels and construction.
Growth in the service industry has been steady this year. The ISM’s index has averaged 55 over the past 12 months.
The survey covers businesses that employ 90 per cent of the workforce, including retail, construction, health care and financial services firms. Nearly 86 per cent of job gains in the past three months have been in the service sector.
Many of those jobs created have been in lower-paying industries, such as retail, restaurants and hotels. That’s a big reason that workers’ paychecks have barely kept ahead of inflation.
Consumers’ spending drives nearly 70 per cent of economic activity and typically has a large influence on the ISM’s services index. Recent reports on spending have painted a mixed picture.
Spending at retail businesses rose 0.4 per cent in October, after no change in September. That was a sign Americans were willing to shrug off the government shutdown and keep shopping.
But early estimates suggest disappointing sales over the four-day Thanksgiving weekend, arguably the most crucial shopping stretch for retail businesses. The National Retail Federation estimates that sales over the holiday weekend fell for the first time since the group began keeping track in 2006.
Economists at IHS Global Insight forecast that retail sales in November and December will increase this year at the weakest pace since 2009.
Americans are splurging on cars and other big-ticket items. Auto sales jumped 9 per cent last month from the previous year to an annual pace of 16.4 million, automakers said Tuesday. That’s the highest level in 6 years.
Strong auto sales are boosting activity at U.S. factories. The ISM’s separate manufacturing survey showed that factory activity expanded at the fastest pace in 2 1/2 years. A measure of hiring rose to its highest level in 18 months, while orders and production also accelerated.
Even so, most economists forecast that growth will slow a bit in the current quarter to about a 2 per cent annual rate. That would be down from 2.8 per cent in the July-September quarter.